Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider the following financial statements for Waverly Company. During the current year, management obtained additional bond financing to enlarge its production facilities. The company faced

Consider the following financial statements for Waverly Company. During the current year, management obtained additional bond financing to enlarge its production facilities. The company faced higher production costs during the year for such things as fuel, materials, and freight. Because of temporary government price controls, a planned price increase on products was delayed several months.
As a holder of both common and preferred stock, you decide to analyze the financial statements:

WAVERLY COMPANY
Balance Sheets
(Thousands of Dollars)
Dec. 31, Current YearDec. 31, Prior Year
Assets
Cash and cash equivalents$21,000$15,000
Accounts receivable (net)58,00046,000
Inventory123,000108,000
Prepaid expenses20,00014,000
Plant and other assets (net)471,000411,000
Total Assets$693,000$594,000
Liabilities and Stockholders' Equity
Current liabilities$93,000$85,000
10% Bonds payable228,000163,000
9% Preferred stock, $50 Par Value78,00078,000
Common stock, $10 Par Value200,000200,000
Retained earnings94,00068,000
Total Liabilities and Stockholders' Equity$693,000$594,000

WAVERLY COMPANY
Income Statements
(Thousands of Dollars)
Current YearPrior Year
Sales revenue$823,000$681,000
Cost of goods sold544,200436,920
Gross profit on sales278,800244,080
Selling and administrative expenses171,400149,200
Income before interest expense and income taxes107,40094,880
Interest expense25,50019,000
Income before income taxes81,90075,880
Income tax expense22,90021,300
Net income$59,000$54,580
Other financial data (thousands of dollars)
Cash provided by operating activities$65,200$60,500
Preferred stock dividends6,7506,750


Required
a. Calculate the following for each year: 

current ratio, quick ratio, operating-cash-flow-to-current liabilities ratio (current liabilities were $78,000,000 at January 1 of the prior year), inventory turnover (inventory was $87,000,000 at January 1 of the prior year), debt-to-equity ratio, times-interest-earned ratio, return on assets (total assets were $493,000,000 at January 1 of the prior year), and return on common stockholders' equity (common stockholders' equity was $236,000,000 at January 1 of the prior year).

b. Calculate common-size percentages for each year's income statement.

Step by Step Solution

3.22 Rating (149 Votes )

There are 3 Steps involved in it

Step: 1

a Calculations for each year Current Year Current Ratio Current Ratio Current Assets Current Liabilities Current Ratio 21000 58000 123000 20000 93000 Current Ratio 222000 93000 Current Ratio 239 Quick ... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Reporting Financial Statement Analysis And Valuation A Strategic Perspective

Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

9th Edition

1337614689, 1337614688, 9781337668262, 978-1337614689

More Books

Students also viewed these Accounting questions